Bank of New York Mellon Corp., Citadel LLC and Getco LLC are pushing U.S. regulators to impose Dodd-Frank Act swap-clearing requirements before next year to help boost competition in the $708 trillion global swaps market.
The Clearing Coalition, a group of 13 firms including proprietary traders, asset managers and hedge funds, urged the Securities and Exchange Commission and Commodity Futures Trading Commission yesterday to move promptly to complete the rules, warning that delay will leave markets vulnerable, damage U.S. competitiveness and stunt prospects for economic growth.
“It has been nearly two years since the Dodd-Frank Act was signed into law, and industry preparations for the core reform of central clearing are at an advanced stage,” the coalition said in the letter. “We ask you to prioritize the finalization of clearing rules to continue this momentum.”
Dodd-Frank, the regulatory overhaul enacted in response to the 2008 credit crisis, calls for the SEC and CFTC to complete rules that will have most swaps guaranteed by clearinghouses that stand between buyers and sellers. The Clearing Coalition, in its letter, said completing the rules will “assure new entrants that an open, competitive market is near at hand.”
Wall Street banks currently dominate dealing of swaps and other derivatives. JPMorgan Chase & Co., Bank of America Corp ., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. controlled 95 percent of cash and derivatives trading for U.S. bank holding companies as of Dec. 31, according to the Office of the Comptroller of the Currency.
The CFTC is preparing to complete the last of a series of rules governing the process, and Gary Gensler, the agency’s chairman, has said he wants clearing to start before year-end.
The agency is poised to complete a rule determining which so-called end-users of swaps -- typically commercial and manufacturing firms -- are exempt from clearing requirements. The CFTC may also in coming months propose which swaps must be guaranteed by clearinghouses, Gary Barnett, the agency’s head of swap dealer and intermediary oversight, said last week.
Swaps and other derivatives are contracts whose value is based on stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates. Clearinghouses seek to reduce risk in swaps by accepting margin, or collateral, from trading parties in transactions.
The coalition’s letter was also signed by D.E. Shaw & Co., AllianceBernstein Holding LP, Arbor Research and Trading Inc., DRW Holdings LLC, Eris Exchange LLC, Imperial Capital, Infinium Capital Management LLC, Javelin Capital Markets LLC, Jefferies and Co. Inc. and Nico Trading Inc.